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New criminal liability for tax evasion facilitated by staff

The government has introduced two new corporate offences of failure to prevent the facilitation of UK and foreign tax evasion. An employer can be found guilty of these offences if its staff or any person or company associated with it criminally facilitates tax evasion, even if the employer has no knowledge or intention to commit the offences. Given the potentially serious consequences of getting this wrong, including unlimited fines and reputational damage, it is important for organisations to understand the risks they face and ensure that their compliance systems are up to the challenge.

We summarise for HR what the new offences are, who they apply to and outline some of the steps employers may take to avoid falling foul of them.

What are the new offences?

The new offences apply where an organisation fails to prevent the facilitation of tax evasion by those who are associated with it. A person is 'associated' with an organisation if it performs services for or on behalf of that organisation (regardless of whether the person is an individual or a corporate body). This will not only catch employees and workers, but also contractors and sub-contractors. For an offence to be committed, it is necessary for a person associated with the organisation to have criminally (i.e. deliberately and dishonestly) facilitated tax evasion. There are two separate offences which apply, depending on whether UK or foreign tax is evaded.

The offences are strict liability offences – so there is no need for any knowledge or intention on the part of the organisation for an offence to be committed. The government's aim in introducing these new offences is to encourage boards and senior management to take pre-emptive measures to prevent their staff and others from facilitating tax evasion and to make it easier for corporations to be found criminally liable for this.

Who do they apply to?

The offence of evading UK tax applies to all companies and partnerships, wherever they are formed or operated, if they are involved in the criminal facilitation of UK tax evasion. The offence of evading foreign tax applies to companies and partnerships with a UK connection in respect of the facilitation of foreign tax evasion.

What are the penalties for getting it wrong?

Organisations may face unlimited fines and confiscation of assets where they are convicted of an offence. There is also the potential for serious reputational damage.

There is a defence available if at the time when the tax evasion offence was committed, the organisation can show that it had in place reasonable prevention procedures (or that it was not reasonable to have such procedures in place).

What are the next steps for organisations?

Government guidance was published in September 2017 which aims to help organisations in undertaking an assessment of the risks of those working for them, and on their behalf, criminally facilitating tax evasion and putting appropriate prevention procedures in place. The guidance is available here.

What action is appropriate will vary from organisation to organisation, and should be proportionate to the level of risk the organisation faces, but in addition to undertaking a risk assessment, it may include steps such as:

ensuring top-level management are committed to preventing those associated with the organisation from facilitating tax evasion

identifying areas where there is a risk of criminal facilitation of tax evasion and taking proportionate steps to mitigate the risks identified

introducing an anti-facilitation of tax evasion policy, or including wording in relation to this in existing policies such as anti-bribery and corruption policies. The aim being to give staff guidance on preventing tax evasion and to set out the organisation's expectations in relation to this

updating the wording in contracts with staff and others providing services to the organisation, requiring them not to engage in tax evasion

training and communicating with staff in relation to the organisation's policies on preventing the facilitation of tax evasion and highlighting a zero tolerance approach to criminal tax evasion

ensuring there is ongoing monitoring and review of the organisation's prevention measures, and that improvements are made where necessary